Earlier this year, European Commission announced (1) strategies to pave the way of a Digital Single Market for Europe. Among other things, the aim of the commission is to bring the small and medium enterprises under the umbrella of a digital economy and make them a part of an increasingly growing e-society. This can as well be defined the first concerted action towards the inclusion of SMEs into the world of digital marketplace.

As studies show (2), majority of the Europeans, as many as 75% of them, use the internet on a regular basis. But only 15% of the SMEs are currently found selling their goods and services online and barely any across the border. This phenomenon, however, is not limited to Europe alone. SMEs have, historically, been reluctant of digitalisation. As UK Business Digital Index 2014 revealed, a third of businesses are without any online skills and 75% of them are not interested in investing to digitalisation at all.

Benefits of Digitalisation for the SMEs

The benefits associated with taking businesses online are quite apparent. To begin with,

(I) There will always be newer markets to explore and new ways of bringing customers in. Being online massively helps in this.

(II) A recurrent problem in terms of market saturation for localised businesses could be delayed, if not eliminated altogether.

(III) This may prove to be the ideal way of functioning in a limited space where competition is stiff. Added services like accepting online orders and door-to-door delivery of household supplies can easily help in attracting potential buyers, besides increasing the goodwill of the shop.

(IV) For the artisanal products it could be a way of finding appreciators across continents. Novica, in association with National Geographic, already showcased the strength of this practice.

(V) For the economy, it could be a way to ensure inclusivity and consequently injecting new spirit in the global market.

Why SMEs Seem to Shy Away from Digitalisation?

There is no one specific reason for this. The major issues seem to be,

(I) A genuine lack of technological knowhow and a reluctance to invest in upgrading skills without having a clear understanding of the associated benefits.

(II) Penetration of internet, particularly broadband technology, is still very low in the developing countries, especially among suburban and rural small business owners. Rural internet usage in India stands at a bleak 5 million, though this is supposed to increase rapidly with the introduction of improved smartphone and mobile broadband technology.

(III) Lack of suitable ecommerce applications like shopping cart, payment gateways and mobile apps at a regional or country level.

(IV) Inability or indifferent attitude towards providing professional customer services, logistics solutions etc. This is particularly true for business owners from smaller cities who have limited access to these.

(V) Language barrier and so on.

And, what about the online retailers who are part of the FMCG industry?

Online Retail & FMCG Industry – A Reality Check

A report published by Nielson in April, 2015, identified Asia–Pacific as the global leader in online grocery shopping. Asia–Pacific continuously outnumbers other markets in adopting online retailing. In China, online purchase of household supplies showed an impressive 40% growth between 2013 and 2014. Willingness to use digital shopping services is also higher among developing countries. Rapid urbanisation, assurance of better food quality and easy access to products not found locally are some of the main factors fuelling this growth.

Experts believe, that in the coming decade growth may decline in all grocery retailing formats except online. The establishment of Amazon Prime Pantry and AmazonFresh is indicative of that. Furthermore, Google’s USD 500 million funding for Google Shopping Express can be explained by this forecast. In this scenario, singularly holding on to the age old self-service model of doing business may prove to be a defeating purpose.

While at the outset, it seems that only the major players are destined to reap benefits from this advancement, it is not strictly so. Though, almost everyone agrees about the amount of efforts needed to be invested by all concerned parties into this transition process.

In Quest of a Smoother Transition  

History has a curious way of repeating itself. What today’s shoppers recognise as a modern grocery store, with a mix of packaged and perishable items in the stock, began nearly a century ago. In 1930, Michael J Cullen (1884–1936) opened a new store named King Kullen in the suburbs of New York City. It was many times bigger than an A&P or a Kroger store and would sell its products at an extremely competitive price.

Over the next two decades, this brought a massive change in the way grocery shopping was done in North America. National stores started converting their smaller footprints rapidly. Some of them like A&P, then world’s largest retailer, failed to keep up with the pace of changing time and went bankrupt.

What the retail industry is currently experiencing can certainly be defined as the latest wave of change, in line with the huge transformation seen 85 years ago. This time though, the micro, small and medium business owners could well find themselves to be the perpetrators of this change. That, however, is not going to happen automatically and an organised effort is required from each player, including the consumers, to bring about a digital revolution.

Collaborative Digital Platform

A standalone effort is hardly going to be sufficient to affect this change. Understanding this, a B2B2C platform is needed that will ensure greater collaboration between key players of the FMCG industry and small time retailers. This Digital platform will ensure,

1. More efficient inventory management. By ordering in bulk, grocers will be in a position to claim articles at a more competitive rate. They can then segregate the volume among themselves according to the demands of the local market. This in turn may benefit the suppliers too.
2. Small time retailers will find themselves in a better position to get past the issues of creating their own Digital touch point and other blockages, especially when they learn to join forces.
3. Industry majors can acquire an in depth knowledge of the consumer behaviour, including their buying pattern. This will help them to streamline their product development process and promotions. As companies learned in last few years, CPG sales online do not necessarily mirror offline ones. For example in the US, CPG sales online is roughly divided into 60% inedible and 40% edible categories, whereas, in physical stores the result is exactly the opposite (3).
4. Consumer goods majors can increase their reach to the less explored market by backing these initiatives. They already have the resources in place to stimulate online retailing beyond metropolises.
5. Based on these statistics, consumers can be given added facilities like subscription based purchase, more payment options, choices of pick up or delivery method, timing and so on.

Most importantly, it is the small and medium business owners themselves who will have to be more receptive to the technological changes in order to not only survive but also reap benefits from this digital revolution of online grocery shopping. By increasing awareness, earning trust and ensuring synergy, Digital Touch Point intends to take a giant step in the right direction.

References:

(1) & (2) Digital Single Market, Press Release, May 6, 2015

(3) Report published by Nielson, April, 2015